If you want to get started investing or
maybe you are already investing, but you want to do it better,
then make sure and watch this video to the very end.
Today, we are talking about the seven
mistakes that beginner investors make and how to avoid them.
So you don't actually have to make these mistakes when you are investing.
It takes a wise man to learn from his own
mistakes, but an even wiser man to learn from others mistakes.
And that's what we're doing today.
We're learning about these mistakes so that you won't have to make them.
I'm Tiffany Thomas with Wealthy Tiffany Dotcom.
And if you are ready to dive in,
hit that like button and we're going to get started.
All right. The first mistake that beginner investors
make is not beginning with the end in mind.
We want to know what our end goal is for our investments.
Is it to just save up enough to purchase a property, to have a down payment
on a property, or is it having enough money to retire?
So we want to be really clear about what our end game is.
What is the end goal?
Just to give you an example, I knew that I wanted to invest more
of my money and I had talked to one of our 401k reps at the company that I was working
for at the time, and he had mentioned that I could start
investing in life insurance and whole life insurance.
And I thought, OK, well,
I know I want to be investing, making my money work for me.
So I went ahead and set up that life insurance policy with him.
And a little while later I figured out that I didn't really want to be investing
in life insurance and I actually could invest my money better elsewhere.
But I didn't really have an end goal in mind.
I just knew I wanted my money to be working for me.
So had I have had an end goal in mind
thinking, OK, I know I want to create more cash flow for myself so that I can retire
early, then I would not have chosen to invest in life insurance.
So I ended up losing thousands of dollars,
unfortunately, but it taught me a valuable lesson.
Know what that angle is when you are setting up your own investments so
that you don't lose money unnecessarily if you set up a brokerage account and bought
some stocks in there and I can take that money out at any point that I want
to, I'm not going to have a penalty to withdraw that money.
I'll just pay taxes on it.
If we don't have that end goal in mind, then how do we know how much we are going
to need to invest or how much money we are going to need to make?
We won't know. Make sure and set clear goals for your
investments before you actually start investing and tell me in the comments one
goal that you are working toward with your investments.
And another way to avoid this is to know why you are investing.
That will make a big difference and it will keep you motivated.
For example,
if you know you want to invest your money to be able to provide for your family
without having to continue to work the rest of your life,
then that will provide you the motivation to invest more money.
Or maybe you simply want to travel more.
You love traveling.
I love traveling, and you want to be able to travel the world.
So knowing why you want to invest your money, why you want to make your money
work for you instead of you working for the money all of the time will help
you get clear on which investments will be best for you and it will help you increase
those investments and continue to invest because you'll be excited about this goal
that you have or this "why" that you have for investing your money.
And mistake number two,
that beginner investors make is not understanding what they are investing in.
This one is really important, there are lots of investments out there that are
very complicated and very hard to understand.
I remember sitting down with a financial
planner at one point and he was trying to explain the different investments
that they offered and how the investments work and what some of the fees were.
And I just I don't even understand what you're telling me.
So please don't invest in something that you don't really understand.
You do not have to have complicated
investments to make a really good return on your money.
From what I have seen personally,
the simplest investments offer the best returns.
Just as the example that I was giving earlier about buying life insurance.
That was a very complicated policy.
And there were I don't even know how to explain it.
To be honest, it was just a mess and it was too complicated.
I prefer to keep my investments simple.
For example, how to buy a stock that's not too hard.
And you can set up an account,
invest your money in a stock and continue to invest in that stock.
Choosing the stock that you want to invest in is probably the most complicated part.
And even that's not that complicated or even investing in an index fund.
I think that is very simple.
And you can make very good returns by investing in a single index fund.
And I also like investing in real estate.
And sure, this might get a little bit more
complicated, but my strategy is to keep it very simple.
I invest in buy and hold properties.
I invest by myself,
I'm not having a partnership or setting up some legal contract with someone else,
that I have to read the whole thing over and understand it all.
Since I am buying for the long term,
I'm just buying and holding, then I don't need to worry about.
OK, well, if I fix this certain thing or remodel this, will it give me enough cash
flow and will I be able to sell it soon enough to make back the money that I need
to make in the time that I need to make it in?
I keep it very simple.
I'm just investing in single family homes
that I can buy and hold for the long term and just put renters in there.
So it's a pretty simple real estate investment strategy that I have chosen.
And I create really good cash flow from that.
And if I were to sell my properties right now, I would make a huge return.
And I get that it's not always that way.
But keeping your investments simple will still give you really high returns.
And you don't have to worry about, oh, did I make a really good investment
because I didn't really understand what I was investing in.
So keep it very simple and understand what you're investing in.
You'll feel a lot more comfortable
and you'll still be able to make great returns on your money.
And let's move to mistake number three that beginner investors make.
And this one is not understanding all of the fees that go into the investments.
This is one that is a really important
because it's a really simple way to make more of your money work for you.
And you don't really have to do anything.
You just have to pay attention to what the fees are with your investments.
For example, if you are choosing to go with a financial adviser or a financial
planner, make sure and understand what their fees really are.
Are they charging you just a flat rate
to meet with them, or are they actually charging you
a percentage of your money that they are going to manage for you?
What is their investment charge and what
fees are associated with those investments that they are putting your money into?
Is it a fund that's going to have a really high expense ratio?
And is there a buying charge or a selling charge or are there any sort of account
fees that you might have, any maintenance fees?
Is there an extra commission fee that they charge?
Be really clear on the fees that are associated with your investments.
And if you are investing on your own, choosing to invest in index funds or
mutual funds, make sure you know what fees are associated.
There's usually an expense ratio associated with any type of fund you are
investing in, and this even includes those funds that are in your 401k plan.
So keep that expense ratio as low as possible.
And I want to show you an example on how much fees can really cost you.
This is taken from personal capital dotcom, and it's just a little chart
that shows you that paying just zero point eight five percent in fees
takes away twenty one percent of your investment.
I can think of a lot of things that I
would do with twenty one percent of my investment.
And not only is it taking away that money up front, but that means you're going
to have to work longer so you will not be able to retire as early as you would have
if you were paying attention to those fees.
And this is from CNBC.
Investors lose up to one third of their potential retirement savings over their
lifetime to fees, even a difference of one percent.
And fees can translate to tens of thousands of dollars over time.
So please make sure you know all of the fees when you are investing.
And the way to do that is if you are working with someone else,
like a financial planner, ask them a lot of questions.
Ask them what are the fees for investing with you?
What are the fees for investing in these types of funds?
Is there going to be a selling fee, a buying fee or whatever else?
Be very explicit and ask specific
questions about how much it's really going to cost you to invest with them.
And if you're doing the research on your
own, when you choose a fund to invest and make sure and look at their expense
ratio, and if you don't see it easily on the website, then Google it.
So let's keep those fees as low as
possible so that we can have the majority of our money working for us.
All right.
Mistake number for that beginner investors make is by thinking they will lose more
money by investing their money, than keeping it in a savings account.
I get it. It's scary to invest.
And you've probably heard stories about, oh, my grandma lost all of her money
in the stock market and she wasn't able to retire.
Or maybe one of your friends has told you that his friend has lost half of his money
and now he's going to work thirty years longer to make up for this?
There's all sorts of stories that we have heard of.
But have we ever heard of a story where a person said, oh, yeah, I'm retiring
off just the money sitting in my savings account?
I haven't. It doesn't happen.
We need to be investing our money.
And there are ways to mitigate the
losses that we may have by investing in the stock market,
if we aren't investing our money, we are not going to be able to retire.
And let me show you a little study that was done.
So in this study, they took two thousand dollars per year and invested it.
And I'm not going to go over this entire graph, but you can see that even timing
the market at the worst possible moments will still give you a higher return than
keeping your money in cash, than keeping it in a savings account.
And not to mention that there is
inflation, which averages about three percent.
And this little graph shows you the blue
line is the savings rate and the black line is the inflation rate.
So you can see for a little bit of time
in about two thousand, the savings rates were above inflation.
But for the majority of the time, it is below inflation.
We definitely want to be keeping up with inflation, but ideally we want to be
increasing more than the inflation rate is so that we can have our money working
for us so that we don't have to continue to work for our money.
So keeping your money in a savings account is not going to help you retire.
It's actually scarier to keep your money
in a savings account than invested in the stock market.
And here is another example for you.
Putting five thousand in a savings account
and adding one hundred dollars per month, in 30 years, you would have forty eight
thousand seven hundred and forty eight dollars.
And that's assuming a one percent interest on your savings account.
Now, let's take a look and see if we
invested that money in the stock market, which averages an eight percent return.
So we took our five thousand again.
We added one hundred dollars per month.
And in 30 years we would have two hundred
and four thousand seven hundred and fifty dollars.
That's an extra one hundred and fifty six thousand dollars.
Just by putting it into the stock market.
That compound interest is really our friend.
That is what is growing our money exponentially.
And if you're worried about the stock
market crashing, that is actually mistake
number five, that beginner investors make,
they worry about the stock market crashing.
When's it going to crash, is it going to crash?
I'm going to help you with this one right now.
Yes, the stock market is going to crash.
It crashes about every eight years.
So now that that's out of the way and we don't have to worry about is it going
to crash, we already know it's going to crash.
So let's worry about the things that we
can control and some of the things that we cannot control.
We can control how much we invest when we invest and when we pull our money out.
And again, we can keep our investing very simple.
We can continue to invest every month or
maybe every two weeks if that's when you're getting paid and continue to invest
as the stock market goes up and it goes down and up and down and up and down.
But remember that it always comes back up.
That is something that investors, especially big investors, tend to forget,
that the stock market will always come back up.
So don't panic.
Don't worry, the stock market will crash, but it's going to come back up.
And if we know that ahead of time,
if we have a little extra cash when it does crash, then we can put a little more
into the stock market and buy stocks that are on sale and then we can wait
for it to come back up and that's when we pull our investments out.
It's pretty simple.
And if you're thinking, well, what if it crashes right when I'm ready
to retire, then let's be a little bit flexible.
Maybe we wait a year to retire
until the stock comes back up a little bit, or maybe we take out a small portion
of what we were going to originally take out.
And we don't take a fancy vacation that year.
Or maybe we get a side hustle and start
creating a little extra income, or maybe we just decide to go ahead
and retire and take out the amount that we want to.
And then we check in next year and see,
OK, is the stock market back up or has it even surpassed where it was?
Have my investments grown or have they not?
Do I need to adjust or am I OK?
It's not the end of the world when the stock market crashes.
And if it is then I think you have bigger problems to worry about.
So be smart about your investments and don't cash everything out when
the stock market crashes, realize that it's on sale and invest some
more of your money if you have extra to invest and know that it will come back
up and that's when you can take some money out.
This moves us into mistake number six, which is overcomplicating investing.
And we kind of touched on this a little bit before.
But let's dive a little bit deeper.
A lot of people think they need to invest in crazy things and have so many different
funds, like twenty different funds and two hundred stocks.
And they need real estate and they need
to have businesses that they're invested in and they just overcomplicate it.
But we don't need to do that.
We can keep it very, very simple. And a lot of times financial planners
will do this, they will overcomplicate
investing, they'll put you in a whole bunch of different funds and it's really
not for your benefit, and they'll even switch you in and out
of different investments to keep things moving around.
But it's so unnecessary.
As I've mentioned before,
the simplest investments can have the greatest returns.
And to give you an example of this one, Warren Buffett did this little experiment.
He bet a popular fund management company,
a million dollars, that a simple fund would outperform all
of their fancy complicated funds over the period of 10 years.
And guess what happened?
Just try to guess.
You probably guessed it.
The simple fund outperformed all
of the overcomplicated funds that the management company had chosen.
And not only did it outperform it, but it outperformed it by forty four percent.
So there is just one example of simple
investing, outperforming, complicated investing.
And I've already given examples in my own life where I have seen that to be true.
So ways to avoid this is to keep your investments very simple.
Don't buy and sell funds all of the time, or buy and sell stocks all of the time.
Just invest in stocks that you think are good and continue to invest in them.
Or the same with a fund or maybe a couple
of funds and continue to invest in them over time.
You can keep it very simple and be very
profitable because overcomplicating does not equal higher returns.
Let's talk about the last mistake that investors make.
Mistake number seven and this one is letting their emotions take over.
We touched on this a little bit before,
but fear and greed actually drive the stock market.
And if we are focused on those two
emotions, we are going to be terrible investors.
So please do not let emotions take over when you are investing.
And I want to share an example of this with you.
A couple of years ago, I was talking to one of my friends and she
had invested quite a bit of money into the stock market right before two
thousand eight and then the two thousand eight crash hit and she completely freaked
out and took out all of her money out of the stock market.
And as we've seen over time,
the stock market has gone up significantly over time.
And if she would have left her investments
and there she would have so much more money right now.
But she let that emotion of fear take over and she sold all of her investments.
And let me show you a graph here.
So leaving ten thousand dollars in the market for a period of thirty six
years can yield you over five hundred and twelve thousand dollars.
Pulling your investment out means you
could be missing out on the best returns in the market.
So out of thirty six years missing just 50
of those days, you would only yield thirty one thousand dollars.
Only 50 days out of thirteen thousand one
hundred and forty days you would lose four hundred and eighty one thousand dollars.
So let's stick to our investment policy
of keeping it simple and continuing to invest over time.
Whether the stock market is going up or
it's going down and taking advantage when it is down and selling
when our investments are up and getting rid of those emotions of fear and greed.
So I would recommend setting a specific time to check your investments.
Don't check them every day, all day,
because they will continue to go up and down all the time and also have patience.
Remember that the stock market always
comes back up, so wait for it to come back up.
Do not become fearful and sell all of your investments at the bottom.
And remember to be clear on that end goal
that we have in mind so that we can remain calm and continue to work toward that goal
and stick to your investment strategy of keeping it very simple.
So these are seven of the mistakes
that beginner investors make and hopefully this is helpful for you so that you don't
make these mistakes when you are investing.
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I'll see you in the next video.